Advanced Financial Accounting

Running Head: Advanced Financial Accounting
Advanced Financial Accounting

Advanced Financial Accounting
Contents
Introduction......................................................................................................................................................2
Accounting concepts........................................................................................................................................2
Conceptual Framework and Issue of Measurement.........................................................................................3
Relevance and Representational Faithfulness- Fundamental Qualitative Characteristics................................5
Conclusion........................................................................................................................................................6
References........................................................................................................................................................7
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Advanced Financial Accounting
Introduction
The financial statements and books of accounts are like the lifelines for successfully
operating the business organisation. Financial reporting is the most important part on
which the entire business activities are dependent. The decision of the potential investors,
shareholders, creditors, suppliers etc. depends largely upon the financial information
depicted in the Balance sheet, income statement, cash flow and statement of changes in
equity. So, all these financial statements should entail the qualitative characteristics like
relevance and faithful representation as given in the conceptual framework. There is also a
confusion of whether the firms should value their assets and liabilities at historical cost or
at the fair value because each measure of accounting has its own advantages and
disadvantages. Therefore, the account preparers need to look at the accounting concepts,
the guidelines in the conceptual framework and also need to maintain the quality of the
information included in the financial statement for facilitating better understanding for the
users of these statements.
Accounting concepts
Business Entity Concept- It is a concept which says that the business and the owner of
the business are two separate entities. The financial statements of the companies are
prepared based on the business entity concept as a result the expenditure related to
business transactions are recorded separately from the expenditures of the owner. The
personal expenses of the business owner like travelling expenses is not recorded in the
income statement of the company and any liability paid by the owner out of the business’
assets is recorded as drawings in the statements.
In case of Aristocrat Leisure, the amount of share capital which stands at $715.1M
contributed by the company’s owners is shown at the liability side of Balance sheet. This
treatment clarifies the fact that the capital contributed by the owners for the business
operation is a liability for the business on which it has to generate a good return.
Money Measurement Concept- The concept says that only those transactions are
eligible to be recorded in the financial statements of the company which can be expressed
in terms of money. The events like strike, management overhaul, skills and competency of
workforce etc. affects the profit and performance of the business but since a reliable value
cannot be assigned to such events thereby it cannot be recorded in the financial
statements.
We could not find any transaction or event of non-monetary nature recorded in the
financial statements of Aristocrat Leisure. By doing so the company is following the
concept of money measurement at the time of preparing their financial statements.
Going Concern Concept- This concept states that the owner of the business is optimistic
about his business and assumes that his business will continue to run for an indefinite
period of time. Companies report their profit and loss only for a particular period of time
instead of calculating the overall return it had earned from the first day till the present time.
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